Quarterly results: Up and up for cloud giants Google and Microsoft

Google cloud announces first ever profits while Azure continues to grow at almost 30% annually, defying expectations of a slowdown

Alphabet and Microsoft announced quarterly financial figures on Tuesday that showed stronger than expected growth in their cloud operations.

Google parent Alphabet's QI figures exceeded analysts expectations for both revenue and turnover, with Google Cloud Platform (GCP) recording a profit for the first time.

The company starting splitting out its cloud figures from other results three years ago. The cloud business includes GCP and Google Workspace (formerly G Suite). According to Alphabet's earnings statement, operating income for the cloud business this quarter were $191 million on revenues of $7.45 billion. That compares with figures of a $706 million loss on $5.82 billion revenue for the same quarter in 2022, a 29% increase in revenues.

While its cloud operations are moving forward, results for the company's advertising business, which still makes up the majority of its income, were more mixed. YouTube advertising revenues fell by 2.5% year-on-year, and the company reported a second consecutive (albeit small) quarterly drop in its overall advertising revenue ($54.55 billion versus $54.66 billion in Q1 2022).

However, search revenues rose 2% to $40.36 billion, and the drop in the overall advertising revenues from Google's search advertising was less than analysts had anticipated.

Overall, the company earned $68.9 billion in revenue, a year-on-year increase of 3%. The figures take into account severance pay for 12,000 staff dismissed in January in a round of job cuts.

Alphabet stock rose 4% in after hours trading on Tuesday.

Sundar Pichai, CEO of Alphabet and Google, said: "We are pleased with our business performance in the first quarter, with Search performing well and momentum in cloud. We introduced important product updates anchored in deep computer science and AI."

Defying expectations

Microsoft also beat analysts predictions, with revenue rising 7% to $52.9 billion and net income up 9% to $18.3 billion.

Azure revenues rose 27% in Q3, the quarter ending 31st March, beating analyst expectations for 26.6% growth.

Revenues for Microsoft's Intelligent Cloud segment, which includes Azure, were up 16% (GAAP) year-on-year to $19 billion.

Microsoft shares rose 8% after the results were announced.

The positive results for Alphabet and Microsoft come in spite of recent job cuts and defy expectations that after the pandemic, which saw many organisations rush to deploy cloud services, and in the face of adverse global economic conditions, the market was slowing down.

Both companies are currently investing heavily in AI, with access to volumes of data and economies of scale that smaller players find it hard to match. The current interest in this technology is predicted to drive cloud growth into the future and plays into the hands of the hyperscalers.

The third of the 'big three' cloud companies, Amazon, will announce its quarterly results on Thursday.